Research

Job Market Paper

Official Arm-Twisting? Measuring the Federal Reserve’s Use of Moral Suasion [Paper, Online Appendix]

Abstract: Moral suasion refers to efforts by government officials to encourage, urge, or pressure private agents to take specific actions, rather than relying on formal policies. I use large language models to construct the first measure of the Federal Reserve’s use of this tool from 1979 to 2024. It was most contractionary in 1980 and the mid-2000s, and most expansionary during the financial crisis and in 2020. It is used primarily to manage prudential risk or influence lending, and is deployed countercyclically. Text-based evidence indicates moral suasion is most effective when backed by supervisory force and aligned with financial institutions’ incentives.

Borrowing Constraints, Markups, and Misallocation – with Huiyu Li, Chen Lian, and Yueran Ma [R&R at Review of Economic Studies, Link]

Abstract: We document new facts that link firms' markups to borrowing constraints: (1) less constrained firms within an industry have higher markups, especially in industries where assets are difficult to borrow against and firms rely more on earnings to borrow; (2) markup dispersion is also higher in industries where firms rely more on earnings to borrow. We explain these relationships using a standard Kimball demand model augmented with borrowing against assets and earnings. The key mechanism is a two-way feedback between markups and borrowing constraints. First, less constrained firms charge higher markups, as looser constraints allow them to attain larger market shares. Second, higher markups relax borrowing constraints when firms rely on earnings to borrow, as those with higher markups have higher earnings. This two-way feedback lowers TFP losses from markup dispersion, particularly when firms rely on earnings to borrow.

Modeling Distress in Private Credit Direct Lending – with Caio Ferreira and Dmitry Yakovlev 

Abstract: Private credit’s direct lending provides highly leveraged, floating-rate loans to middle-market borrowers, making the sector particularly sensitive to monetary tightening. Rising rates immediately increase debt service costs, high leverage magnifies the strain, and slowing growth can leave operating profits insufficient to cover expenses. Yet, the market remains opaque, with limited borrower-level information available. To quantify potential distress in the direct lending ecosystem, we model a synthetic portfolio of direct lending loans using simulated leveraged buyouts of U.S. small-cap firms. Calibrated on recent data and stress scenarios, the analysis shows resilience under moderate shocks but significant vulnerabilities in deeper downturns, with subordinated instruments being most exposed. This framework helps quantify risks and informs policymakers’ assessments of a fast-growing but opaque market.